I received an email from a fellow consultant, Jeff Thorn, which read in part:

Do you compensate people who bring you business by way of a referral? I feel like it would be a nice thing to do. But seeing how almost all of my business comes by way of referral, I am not always sure what is appropriate. Sometimes an email introduction turns into a $20,000 project. What is an appropriate way to compensate the person who made the introduction?

Jeff raises an interesting question. One of the best sources of new business is a word-of-mouth referral, so it could make sense to reward those. I can think of at least five approaches you could take:

A fixed amount, small enough that you can afford it, but big enough to encourage the referrer. I suppose you could also make it conditional on turning into at least a minimum amount of business. For example, you might give your referrer a $100 finder's fee once you're assured of at least $1,000 in revenue.

A percentage of the business it leads to for a specific period of time. That would encourage people to find *good* leads. Maybe something like 2% of revenue for the first six months. Of course, you should build that into your fee so you're not taking a loss, so be sure to balance the size of the reward against not overcharging your client.

If the referrer is a client of yours, give them a discount on their future business for a specific period of time. For instance, 5% off their bill for the next six months. That would not only encourage them to provide a referral, it would also make them want to give you more business themselves at the reduced rate.

A non-monetary gift or note of appreciation. Money isn't everything, and sometimes a personalized gift can mean more to someone because they know you took the time to think about how to thank them, rather than following a predetermined compensation policy. In that case you want to make sure that you do give it some thought, rather than dropping a one-size-fits-all gift or a pre-printed card in the mail.

If the referrer is a fellow consultant, return the favor. A consultant who gave you a referral understands the value of referrals. Furthermore, they've demonstrated that they care more about finding the right solution than they do about snatching up all the available business for themselves — thus, you can bet they'll do good by the client you're sending their way.

I don't think I've ever rewarded a referral with anything more than a "thank you," but now that Jeff made me think about it perhaps I should. One of my colleagues, Eric Everson, gave me two referrals years ago that turned into more than half a million dollars of revenue since then. I should really buy that guy a beer. Or at least link to his business.

How do you reward referrals? Do you have a scheme that doesn't fit into one of the above categories? Let us know by posting your comments in the discussion.

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About Chip Camden

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

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Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant blog, he also contributes to [Geeks Are Sexy] Technology News and his two personal blogs, Chip's Quips and Chip's Tips for Developers.